COMPREHENSIVE PROBLEM 3 : ERIC’S ELECTRONICS

Objectives:  Demonstrate application of accounting concepts related to debt and fixed assets.

·         Calculation of interest on discounted and non-discounted notes.

·         Recommend best financing option and provide supporting evidence

·         Create required accounts to record liabilities

·         Calculate required adjustments

·         Calculate depreciation using various methods

·         Determine book value of assets

·         Make appropriate recommendations regarding asset dispositions

Scenario:    Eric’s Electronics (EE) sells computer parts.  You are the company accountant and have been charged with making several decisions regarding the company’s future.

Part 1:  10%

The company has outgrown its current facility and must borrow $250,000.  The company has sent you to speak with the Bank about the financing options.   After determining the best option, you must justify your selection to the Board of Directors.

Part 2: 40%

Eric’s Electronics offers a warranty on its parts of 90 days.   You must make certain that the proper accounts are created and maintained.

Part 3:  50%

The company owns fixed assets and with the expansion it must determine whether assets should be replaced.  You have been asked to provide the required financial information that will support the recommended course of action.